Bidding war looming for HCA?

Blackstone said eying bid to top $21 billion offer on table

SAN FRANCISCO -- Private equity firms may be on the verge of a bidding war for hospital chain HCA Inc., according to a media report Wednesday.

The Blackstone Group is considering a possible bid to top the $21.3 billion leveraged buyout offer made from Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch & Co.
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that HCA
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accepted Monday, The Wall Street Journal reported in its online edition, citing an unnamed person familiar with the matter. See Wall Street Journal story (subscription required).

The Bain team also includes members of HCA management, and the Frist family, which founded the chain.

Competing bidders have 50 days from Monday to submit an offer topping the management-backed deal, The Journal said.

Deliberations over a bid, which is far from certain, are still in early stages, and Blackstone hasn't yet invited other private-equity firms to join any potential offer, The Journal said.

The Journal said the possible emergence of a Blackstone bid was first reported Tuesday in the Times of London's online edition. Representatives of Blackstone, Merrill, KRR and Bain declined to comment and HCA officials couldn't be reached. The Journal said.

HCA shares closed Tuesday at $49.25, a discount to the $51-a-share price tag of the buyout deal announced Monday, The Journal said.

Blackstone may have a hard time putting a competing bidding group together because other firms may be reluctant to challenge the offer HCA already has accepted, The Journal said.

The offer gives Bain, KKR and Merrill the right to top any counteroffer, The Journal said, and a second bidder would have to go through due diligence, which could cost $10 million to $20 million, without the certainty that the work would culminate in a deal.

If a rival bidder tops the current agreement, a breakup fee of $300 million would be payable to Bain, KKR and Merrill, according to a filing with the Securities and Exchange Commission.

If Blackstone does mount a rival bid, it could set up a rerun of the kind of battle that occurred in 1988 for RJR Nabisco Inc., which set the previous record for the biggest buyout - a $25 billion deal that topped $31 billion, counting $6 billion in assumed debt, The Journal said

In that battle, KKR itself topped a management-backed bid.

The HCA buyout already exceeds RJR in size when HCA's $11.7 billion in debt is added to the total, giving it a total value of about $33 billion.

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